Shares in the electronics to plastics conglomerate Tyco International have suffered another blow on the stock markets, as investors desert any firm with less than crystal-clear accounting practices.

Tyco International

Headquarter: Bermuda

Staff: 202,000 (2000)

Turnover: $34bn (2001)

Profits: $3.97bn (2001)

Market value: $58bn (29 Jan 02)

52-week share high: $63.21

Wednesday's low: $28.60

At the beginning of the year, Tyco's shares sold for just under $60. By Wednesday they had dropped well below $30.

Analysts call it the "Enron ripple". Bill Barker, investment expert at RBC Dain Rauscher, said: "I think that the ripple effect from Enron is picking up speed. Investors, when in doubt, are selling rather than hanging around to hear the news."

Growth makes for difficult accounting

Not that there is anything wrong at Tyco, observers say. The firm is no Enron.

But fast growth through acquisition - more than 200 firms in 10 years - has created a highly complex conglomerate. Analysts and investors alike find it difficult to discern how much of Tyco's profits comes from real growth, and how much results from its buying spree.

Tyco's activities

electrical and electronic parts

undersea telecoms systems

fire protection systems

burglar alarms

specialty valves

disposable medical products

financial services

plastics

adhesives

Tyco International is active in 100 countries, and makes everything from burglar alarms to plastic hangers.

It is among the world leaders for electrical components, undersea telecoms systems and specialty valves.

Expanding Tyco into many different industries had a purpose. Chief executive Dennis Kozlowski and his team hoped to build a "recession proof" conglomerate.

The U-turn

The Bermuda-based firm had a price to pay. As it integrated its new divisions and acquisitions, analysts cast doubt over what they called "aggressive purchase accounting methods"; the firm had to write off billions of dollars in goodwill charges.

And to finance the purchases, Tyco piled up huge debts.

Now investors are worried and are dumping Tyco's stock.

To address their concerns, Mr Kozlowski last week announced a spectacular U-turn.

Tyco will sell its plastics business, and split the remainder into four separate listed companies, focusing on security and electronics, health care, fire protection and flow control, and financial services.

Mr Kozlowski believes that the proceeds from the split will reduce Tyco's debt by $11bn - and will create a firm 50% more valuable than the sum of its parts.

Market reaction, however, suggests that investors are reluctant to believe the talk. They fear the break-up might trigger huge tax payments.

Dubious deals

And as the firm has come under closer scrutiny, a string of bad or at least dubious news has cast doubt on the firm's ethics and business practices.

Tyco had to acknowledge that it paid one of its outside directors, Frank Walsh, $10m in cash plus another $10m to a charitable fund of which Mr Walsh is a trustee.

There's a lot of negative psychology out there right now... Enron is making a lot of investors wonder who they can trust

Richard Dickson, Hilliard Lyons

The company argues that the money is a justified reward, as Mr Walsh helped secure the takeover of CIT Group - now Tyco Capital - last year. In corporate America, though, such payments raise questions about a conflict of interests.

Potentially more damaging is the news that Tyco's two top executives, Dennis Kozlowski and his chief financial officer Mark Swartz, quietly sold Tyco shares worth more than $100m - despite public assurances that they rarely did so.

They managed to hide the deals from investors by using the same method as Enron chairman Kenneth Lay - selling the shares not on the stock market but directly to Tyco itself.

But he acknowledges that "clearly we are in an environment where people are intensely sceptical of corporate America, and for that matter, of Tyco".

Richard Dickson at investment firm Hilliard Lyons confirms that there is a wider trend: "There's a lot of negative psychology out there right now. Enron is making a lot of investors wonder who they can trust."